My most recent books are the Leader's Guide to Radical Management (2010), The Leader's Guide to Storytelling (2nd ed, 2011) and The Secret Language of Leadership (2007). I consult with organizations around the world on leadership, innovation, management and business narrative. At the World Bank, I held many management positions, including director of knowledge management (1996-2000). I am currently a director of the Scrum Alliance, an Amazon Affiliate and a fellow of the Lean Software Society. You can follow me on Twitter at @stevedenning. My website is at www.stevedenning.com.

Another Myth Bites The Dust: How Apple Listens To Its Customers

Thus Alan Deutschman said yesterday in the New York Timesabout Steve Jobs: “He doesn’t market-test anything. It’s all his own judgment and perfectionism and gut…. Again and again, Mr. Jobs has gambled that he knew what the customer would want, and again and again he has been right.”

Gambling? Instinct? Gut?

Not really.

The Ultimate Question 2.0

The reality is that Apple listens very closely and systematically to its customers. Apple is one of the premier exponents of the Net Promoter Score for systematically listening to customers and managing its business in response to what they hear. Fortunately, with the wonderful new book being published in September 2011, The Ultimate Question 2.0 (Revised and Expanded Edition): How Net Promoter Companies Thrive in a Customer-Driven Worldby Fred Reichheld with Rob Markey, we have a blow-by-blow account of exactly how Apple does listen to its customers. Listening to customers is at the center of Apple’s business processes.

Fred Reichheld’s The Ultimate Question, which was published in 2006, was a comprehensive account of best available expertise on measuring customer delight—the new bottom line of 21st Century businesses. It showed how asking a single question, “How likely is it that you will recommend this product or service to a friend or colleague?” on a 0-10 point scale, and tracking the ratio of “promoters” to detractors—the Net Promoter Score or NPS—was the best and most practical single measure of customer delight.

Now five years later, Reichheld and Markey share the experience with NPS of leading companies and show how this rapidly advancing sphere of knowledge is becoming the compass for business success in the 21st Century, in particular Apple.

Not surprisingly, Apple is one of the stars of the show, having some the highest NPS scores of any sector. But this didn’t happen by instinct or gut feel or gambling. It was earned by Apple the old fashioned way: through careful listening to customer and responding to what they heard.

Apple’s goal: delight the customers

Take Apple’s retail stores. It helped of course that Apple’s mission was not to make money but to “‘enrich the lives of customers and employees.’ The stores would be places for people to gather and learn, not just to buy. They would be designed to encourage an ongoing relationship with customers, not merely a one-off purchase transaction. The delighted customers …would tell their friends and colleagues about their wonderful experience at the store.” (p.129)

Apple opens an average of three to five stores somewhere in the world every month, and uses the NPS to follow how effectively each store is living up to the mission and make adjustments.

Apple listens daily

Listening to customers isn’t something Apple does once a year or even once a quarter. NPS plays a central role in the daily management of Apple’s three-hundred plus stores.

“Comments from customers help store managers prepare for service recovery calls with detractors to close the feedback loop. The outcomes of these calls, together with the customer comments, provide important coaching and feedback messages that are passed along to employees.” (p.130)

Employees who create promoters are recognized by managers. In some stores, customer comments are scrolled across a large-screen TV monitor in in the employee break room.

Meanwhile Apple’s central NPS team analyzes customer feedback from all the stores to understand the systemic reasons for promoter’s enthusiasm or lack thereof.

At Apple, customer focus is thus not a vague slogan. It’s at the core of the way the stores are managed. Employees know where they stand among their peers in terms of NPS and where their stores stands relative to the rest of the stores in the region. Each day, there is an opening daily standup (the “daily download”) where the employees review the NPS feedback and discuss how to adjust their work accordingly. (p136)

Apple’s response is rapid—and profitable

At Apple, store managers call every detractor within 24 hours. Initially, they found there were some detractors they couldn’t reach. Subsequent studies showed that detractors that they did reach purchased substantially more Apple products and services than the others. Further studies showed that every hour spent calling detractors was generating more than $1,000 in revenue or additional sales of $25 million in the first year, which was a good return on the investment. (p.156)

In traditional management, where customers are secondary, the expense of following up with customers would seem like the first kind of expense to cut in a crunch. With these numbers in hand, Apple’s managers realize that this is one of the last things that should be cut.

Extending the framework to employees

Nor does Apple’s focus on customers mean that it neglects its employees. Apple has been a pioneer in adapting the NPS framework to employees. Apple realized that only employees who were promoters themselves of Apple were likely to be able to turn customers into promoters. So they began surveying their own employees every four months to determine how likely the employees would be to recommend the store as a place to work. (p.131).

The results

When Apple began measuring NPS in 2007, its 163 stores already had a very good NPS of 58%. In 2011, its 320 stores have an outstanding NPS of 72%. The best stores achieve a remarkable 90% NPS.

Is the primary source of customer enthusiasm Apple’s amazing products or cool design? No. The most common reason for becoming promoters is the way store employees treat them. (p.130)

The reason Apple is so committed to NPS? It helps everyone to do the right thing—enrich the lives of the customers they touch.

Making money is the result, not the goal

The result is of course that Apple makes an awful lot of money. Where a typical electronics store averages $1,200 per square foot in sales, mature Apple stores exceed $6,000 per square foot—the highest productivity in retailing of any kind. (p.131).

What sometimes confuses people in thinking about Apple is that they see Apple making a lot of money, and they begin to imagine that making money must be Apple’s goal.

On the contrary. If making money were ever to become Apple’s goal, the whole approach would collapse back into the failing practices of traditional management.

Thus Apple practices radical management, where making money is the result, not the goal of the organization. The bottom line of its business is to delight the customer. We are indebted to The Ultimate Question 2.0 for showing us how they accomplish that on a daily basis.

The Ultimate Question 2.0

The Ultimate Question 2.0 shows how many leading companies like Apple, such as Intuit [INTU], Philips [PHG], Southwest Airlines [LUV] and Allianz [AZ] are focusing on customer delight and using NPS to accomplish that. This book, which is essential reading for anyone interested in radical management, is being published in September 2011 by Harvard Business Review Press and is now available for pre-order at Amazon here.

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I have posted my response to your comment in a new article: http://www.forbes.com/sites/stevedenning/2011/08/28/myth-7-why-steve-jobs-is-hard-to-replace/

Call the customers gullible, if you like. Call the products overpriced, if you like. It’s a different way of doing business. It’s what the 21st Century is about. Compete on cost and you are doomed. Delight your customer and the rest takes care of itself.

You bring out a very good point. Too often companies focus on ‘up selling’ rather than customer service. Customer calls are recorded and measured for how fast they can turn you over.

Another company that has done very well in the customer service area is Amazon (note it’s hard when you live in the States to understand the frustration of not speaking the local language)

Amazon Europe has several big customer service advantages over the competition. First off even though I live in Spain and they don’t have presence here I can order from any of their European sites. Secondly all the web sites are identical (so often I have a co.uk and .de open) so it’s easy to comparison shop. Thirdly regardless of country returns are the same. Simply fill out a form and it’s either a replacement product or a refund (note they also reimburse postage).

Two examples, one time I had defective cable (cost 7€ filled out the form and before I knew it there was a replacement part on it’s way. Didn’t matter that I ordered it from the German store)

Second time I returned a defective product and received a refund not only of the purchase price but of the shipping costs.

But to me the biggest advantage is how easy they make it. I’m sure another online store might have better prices but then it means all the hassle of registering and who knows about refunds.

Thanks for your comment. As a book purchaser, I am also an Amazon fan for the reasons you give. I have to say, though, as an author, I find Amazon quite difficult to deal with: in some areas, very responsive but in other areas, very unresponsive and unhelpful. This suggests that they still have work to do in listening.

My point is that when Apple is getting daily feedback from customers, actively seeking detractors, sharing that feedback immediately with its employees, and immediately adjusting its actions in response, the company is not being run on the basis of “gambles” or “the gut feel” of the CEO, or “all his own judgment”, as the NYT article stated.

I agree that Steve Jobs appears to share my lack of faith in focus groups, but that doesn’t mean the company runs on gambles and gut feel.

What’s dangerous about this particular myth is that it ties in with the allied myth of the CEO as lone hero, on whom the whole fortunes of the organization depend.

While obviously Steve Jobs has made an immense individual contribution to Apple, the business practices that he introduced, and on which much of Apple’s success rests, can be continued without him and are eminently replicable by others.

Thanks for your comment. As the article indicates, Apple uses the NPS approach to identify “detractors”. It doesn’t ask, Are you happy? Rather it asks, How likely is it that you would recommend us to a friend or colleague? which is the question that research shows most closely correlates with future purchasing and recommendation behavior. They make a concerted effort to follow up with detractors, listen to what they say, and adjust if necessary. They have found that it is hugely profitable to do this. So yes, they not only measure it. They also quantify the costs and benefits of doing so.

Thanks, was discussing this very thing with a friend who has a mac book pro, bought it in the states and took it to the Apple store here in Madrid and had it repaired, (think at no cost).

Personally for me the Steve Jobs greatest feat has been to get people like me (only windows user) to serriously consider the switch to Apple, not just becuase the iPad is so good, but the service is outstanding.

Steve, if you would have had an LG Prada … you would have had an iPhony BEFORE the great sage Stevie Gods STOLE the design and GUI interface from LG at CeBIT.

Stevie’s “gut” must have been “upset” when he barfed up (flopped) the AppleTV and the other MacTV, Mac Cube, iPud HiFi (speaker), Apple Pippin, Motorola ROKR (when he screwed Motorola), Apple Puck Mouse, Apple Lisa, 20th Anniv Mac, and least we forget the Newton.

Considering the actual few number of product catagories that CrApple has sold (but makes none of since ALL has been out-sourced since 1979), and updates or cosmetic revisions don’t count, Stevie Gods has had a pretty dismal track history …. add em up FanBoys, you lose.